SkyWest, Inc. (SkyWest Airlines) (St. George) reported a second quarter net income of $17.0 million.

Here is the full report:

“SkyWest, Inc. today reported operating revenues of $937.2 million for the quarter ended June 30, 2012, compared to $933.7 million for the same period last year.  SkyWest also reported net income of $17.0 million, or $0.33 per diluted share, for the quarter ended June 30, 2012, compared to $1.6 million of net income, or $0.03 per diluted share, for the same period last year.

Quarter Summary

SkyWest’s operating and financial results for the quarter ended June 30, 2012 reflected a significant improvement compared to the same period of 2011.   SkyWest generated increased operating revenues resulting from increased incentive payments under its contracts with major partners primarily as a result of better on-time and completion factor performance.  SkyWest’s improved results also reflected the implementation of cost reduction programs during 2011 from which SkyWest achieved reduced flight crew and maintenance costs, as well as other benefits for the quarter ended June 30, 2012.  As a consequence of SkyWest’s improved results, SkyWest’s pre-tax income for the quarter ended June 30, 2012 increased $30.4 million over the quarter ended June 30, 2011.  SkyWest reported pre-tax income of $28.6 million for the quarter ended June 30, 2012, compared to a pre-tax loss of $(1.8) million for the second quarter of 2011.  Following are the primary items that affected SkyWest’s financial results for the second quarter of 2012:

• Recorded approximately $7.0 million in additional revenues related to improved metrics for on-time performance and higher completion factors
• Recorded improvement in pro-rate flying operations of approximately $2.5 million
• Reduced crew and crew-related training costs by approximately $10.0 million
• Reduced engine and airframe maintenance costs by approximately $3.7 million
• Recorded reimbursement from a major partner of approximately $3.0 million in aircraft redeployment costs previously incurred

2nd Quarter 2012 Compared to 1st Quarter 2012

SkyWest’s implementation of its plan to return to profitability also resulted in improved results from the quarter ended March 31, 2012 to the quarter ended June 30, 2012.  During the second quarter of 2012, SkyWest generated increased operating revenues and reduced its operating costs, while producing more block hours that the first quarter of 2012.  During the second quarter of 2012, SkyWest also continued to make progress on its cost reduction plan by reducing crew-related costs and maintenance expenses from the first quarter of 2012, while taking into account the increased block hour production it generated during the second quarter of 2012.  Following are highlights resulting from SkyWest’s implementation of its plan to return to profitability, comparing the second quarter of 2012 to the first quarter of 2012:

• Total operating revenues increased to $937.2 million compared to $921.2 million
• Total operating expenses and interest decreased to $909.8 million compared to $$920.5 million
• Pre-tax income improved $29.9 million
• Net income improved $17.6 million
• Block hours increased to 574,884 compared to 556,421 or 3.3%

As a result of continued cost reduction efforts and better utilization of personnel, SkyWest was able to reduce its crew related block hour costs for the second quarter ended June 30, 2012 by approximately 3.9% compared to the first quarter ended March 31, 2012. Additionally, as a result of these efforts, SkyWest was able to reduce it maintenance costs (less engine overhauls) for the second quarter ended June 30, 2012 by approximately 3.7% compared to the first quarter ended March 31, 2012.

Financial and Operating Results

SkyWest’s total operating revenues increased $3.5 million, or 0.4%, during the quarter ended June 30, 2012, over the same period in 2011.  However, after excluding pass-through costs for fuel and engine overhaul’s, (that are included in operating revenues) for the quarters ended June 30, 2012 and 2011, total operating revenues increased approximately $17.3 million for the quarter ended June 30, 2012 compared to the same quarter last year. The increase in total operating revenues was primarily 1) the result of experiencing improved on-time, completion and customer service metrics and 2) from normal recurring contract escalation increases allowed under SkyWest’s contracts, and are included in the rates paid by its major partners.  SkyWest’s pro-rate flying operations experienced a planned reduction in block hours of 7.3% resulting in reduced revenues of approximately $2.1 million for the quarter ended June 30, 2012.  In spite of reduced operating revenues from pro-rate flying, SkyWest’s revenue per available seat mile for pro-rate flying increased approximately 5.0% from improved pricing.  Total block hours for the quarter ended June 30, 2012 were 574,884 compared to 574,372 for the same period last year.

Total airline expenses (consisting of total operating and interest expenses) decreased $24.9 million, or 2.7%, during the quarter ended June 30, 2012, over the same period in 2011.  The decrease was primarily the result of SkyWest’s implementation of planned cost reduction efforts, which resulted in reduced crew-related and non-pass through maintenance costs of approximately $13.6 million. For the quarter ended June 30, 2012, compared to the second quarter of 2011, SkyWest also experienced a reduction in engine overhaul costs of approximately $9.3 million, which costs are considered pass-through costs under its contracts with its major partners.

Under United Express agreements for SkyWest Airlines and ExpressJet Airlines, SkyWest recognizes revenue at a fixed hourly rate for mature engine maintenance on regional jet engines and SkyWest recognizes engine maintenance expense on its CRJ200 regional jet engines on an as-incurred basis as maintenance expense.  During the quarter ended June 30, 2012, CRJ200 engine expense under these agreements decreased $1.6 million to $13.8 million compared to $15.5 million for the quarter ended June 30, 2011, as a result of decreased engine overhaul expense due to the timing of scheduled engine maintenance events.  SkyWest was reimbursed approximately $10.2 million and $9.6 million for engine overhaul expense, under its United Express agreements, in each of the periods ended June 30, 2012 and 2011, respectively.

Liquidity

At June 30, 2012, SkyWest had $629.5 million in cash and marketable securities, compared to $646.5 million as of December 31, 2011.  SkyWest’s long-term debt was $1.53 billion as of June 30, 2012, compared to $1.61 billion as of December 31, 2011.  The decrease in long-term debt was due primarily to SkyWest’s payment of normal recurring debt obligations.  SkyWest has significant long-term lease obligations that are recorded as operating leases and are not reflected as liabilities on SkyWest’s consolidated balance sheets.  At a 5.2% discount rate, the present value of these lease obligations was approximately $1.8 billion as of June 30, 2012.

Other Items

SkyWest has recently achieved the following milestones:

• Completed  the sale of our investment in Trip Linhas Aereas (“TRIP”) in July 2012
• Announced a Memorandum of Understanding with Mitsubishi Aircraft Corporation covering the purchase of 100 Mitsubishi regional jet aircraft
• Announced award of 34 additional dual-class aircraft and removal of 66 CRJ200 aircraft
• Total fleet as of June 30, 2012 consisted of 725 total aircraft compared to 725 aircraft as of June 30, 2011″

Copyright Photo: Michael B. Ing. SkyWest is one of the last operators of the Brasilia in the United States. SkyWest Airlines’ Embraer EMB-120ER Brasilia N296SW in the 1986 color scheme prepares to land at Los Angeles.

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